China firm joins race to buy Baltic Exchange

The members' bar at the Baltic Exchange in London. An acquisition of the Baltic would give China Merchants Group ownership of the shipping industry's benchmark indices and greater access to the multibillion-dollar freight derivatives market.
The members' bar at the Baltic Exchange in London. An acquisition of the Baltic would give China Merchants Group ownership of the shipping industry's benchmark indices and greater access to the multibillion-dollar freight derivatives market.PHOTO: REUTERS

China Merchants Group makes informal bid for business, whose other suitors include SGX

LONDON • State-run conglomerate China Merchants Group has made an informal bid to buy London's Baltic Exchange, becoming the latest contender for the business that has been the hub of the global shipping market for centuries.

The approach was made by the group's subsidiary China Merchants Securities, according to sources. The privately held Baltic Exchange had held talks with the Singapore Exchange (SGX) and other potential buyers, including CME Group, Intercontinental Exchange and Platts, with London Metal Exchange (LME) also approaching it. Baltic last month had confirmed it had received a number of "exploratory approaches" after the SGX revealed it was seeking to buy the business.

"They are the latest (suitor) and, certainly, with such a massive group, it shows how this is heating up," one source said.

An acquisition of the Baltic, which was founded in 1744, would give the Chinese conglomerate ownership of the industry's benchmark indices - which could be further commercialised - and greater access to the multibillion-dollar freight derivatives market. It is the latest Chinese firm to look at shipping and commodities targets in Europe, aiming to take advantage of a market downturn that has pushed down valuations of some firms.

China Merchants Securities, listed in Shanghai , did not respond to requests for comment.

A spokesman for China Merchants Group in the Chinese city of Shenzhen said on Wednesday he was not aware of any bid for the Baltic Exchange, adding if there was a bid, it would be processed by one of the group's units, which are listed in various locations such as Shanghai, Hong Kong and Singapore.

A Baltic spokesman said the exchange "to date hasn't commented on the identity of anyone involved in the process and declines to comment on whether or not the Baltic is in discussion with CMG (China Merchants Group)".

Clearing houses and exchanges are looking for a way to distinguish themselves at a time of growing regulatory scrutiny and weak commodities markets. Buying the Baltic would allow any of those entities to diversify their activities into freight.

China Merchants Group is among the country's biggest conglomerates, with interests spanning ports, shipping and financial services.

In December, the Chinese authorities approved its acquisition of state-run logistics group Sinotrans & CSC Holdings, part of efforts by Beijing to make sprawling government-controlled firms more efficient as economic growth slows.

That deal placed China Merchants' estimated assets worth 624 billion yuan (S$130.4 billion) and Sinotrans & CSC assets of about 109 billion yuan under one roof.

The two sources said China Merchants Securities was willing to pay a premium above other bidders to acquire the Baltic.

Other Chinese firms looking at targets in Europe include Cosco, last month named by Greece as the preferred bidder for its biggest port, Piraeus. Since then, Cosco has merged with fellow state firm China Shipping Group to create one of the world's biggest commercial shipping companies, China Cosco Shipping Corp.

China Merchants still faces competition from SGX and others like the LME - bought by Hong Kong Exchanges and Clearing in 2012 for US$2.2 billion (S$3 billion).

The Baltic is owned by around 380 shareholders, many from the shipping industry. It produces daily benchmark rates and indices that are used across the world to trade and settle freight contracts.

Any acquisition of the Baltic could face opposition from freight brokers who would fear some loss of their business.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 18, 2016, with the headline 'China firm joins race to buy Baltic Exchange'. Print Edition | Subscribe